1. Impact of Hurricane Mitch on
regional markets

The biggest impact on regional markets, during the period
immediately after the hurricane, was the destruction of the transport
infrastructure, of roads, tracks and bridges. The total extent of the damage was
equivalent to 27 754 kilometres of roads and tracks, and 156 bridges. As a
result, flows of cargo and people to those markets were interrupted, and the
cost of urgent items rose temporarily during the period immediately after the
hurricane.

There was no physical damage to installations in general. As
far as international road, sea and air trade was concerned, the effects were
chaotic for the first month after the hurricane, and eventually returned to
normality at the beginning of 1999. Indirectly, markets were affected by the
destruction of electrical systems and networks, as well as damage to drinking
water systems.

From a structural viewpoint, food markets suffered
restrictions due to the destruction of the infrastructure. It was apparent,
however, that most countries had the capacity to implement immediate actions,
even by supplying some needs through local production, although in practice,
there were very few ways in which this type of action could be co-ordinated.
Within the region, it was possible to transport emergency production of basic
grains in Nicaragua to markets in El Salvador and Honduras, due to pre-existing
trade links with those countries.

Trading in foods outside the region is almost non-existent,
and it appears to be regarded as an outmoded productive activity. Official
figures from all countries in the region, as well as from neighbouring
countries, indicate that they will all become importers of cereals and processed
foods in the immediate future. It thus appears that the production of food is
not regarded as a strategic way to resolve problems of diet and malnutrition,
nor as an alternative form of national income or a way to create jobs and expand
markets.

2. Food balances

The countries affected by the hurricane do not maintain food
balances that might provide an indication of the status of national inventories
and the rate of consumption relative to the availability of basic foods. As a
result, it is not possible to gain a clearer sense of how to formulate a
national import policy or a policy for the promotion of domestic production, or
even to gain some idea of how vulnerable the population may be to cyclonic
events or other types of disaster. As a result, when disaster strikes, any
possible planning of food imports or donations is based on emergency situations,
without their being any real awareness of available domestic capacity.

Agriculture Ministries in the region - with the exception of Nicaragua's, which
recorded balances up to the year 1999 - do not have official departments charged
with this task, despite the fact that they have received instruction and training
in such matters from FAO and, more recently, from the United States Department
of Agriculture.15

During the field visits made by the consultant, it became
apparent that it would be necessary to provide follow-up in this area, since it
was quite clear that relying on improvisation in the area of food affects all
countries in the region. There is an effort currently underway to this effect in
Guatemala, in the form of a draft policy on Food Security. At this point,
however, there are no monitoring operations and no calculation of balances. Even
in countries where some information is available, such information is generally
very limited. Nicaragua has introduced its National Food Security and Nutrition
Policy, but it lacks a plan of action for its due execution.

It proved extremely difficult to obtain information about the
national balances of each country, and indeed for the 11 products in the food
basket. Furthermore, it was possible to obtain only partial information
regarding basic grains. For the people interviewed during the collection of
country data, the food balance proved to be unknown as a working tool.

Balances for basic grains (see Annex 16) show that the
countries affected consume around 1.8 million tonnes of maize, 700 000 tonnes of
beans and around 406 000 tonnes of rice per annum. However, if one looks at the
total utilization of products, including losses, use of seeds and utilization
for the manufacture of balanced foods, the results are as follows: In maize,
total utilization is 2.4 million tonnes; in beans, 1.2 million tonnes; and in
rice, around 456 500 tonnes. This amounts to overall annual consumption of 4.1
million tonnes for these three products.

As for the remaining eight products in the food basket, it was
not possible to determine precise intake data. This situation should have been
rectified, especially after Hurricane Mitch, to help toward national
food-security planning, based on national market balances. Nor is any use made
of the food-balances method to determine the nutritional status of the
population at the end of each year or to help identify alternative forms of food
consumption. In some cases, the method is even unknown, especially in those
countries that have recently elected new national governments.

3. Analysis of farm
credit

Central America is known as a region with a high level of
basic-grains consumption. Their production, however, must take place within an
unfavourable context and without the necessary funding. Indeed, the region
depends on imports as a supplement to domestic consumption. This situation is
illustrated by Table 15, which shows that scarcely 7.9 percent of the average
total funding for the agriculture sector is spent on the production of maize,
beans and rice.

Among the countries affected by Hurricane Mitch, Belize and El
Salvador provide the least funding for this key area of production, intended for
domestic consumption. The two countries allocate only 1.2 percent and 1.3
percent of financial resources, respectively. Guatemala and Honduras have the
highest production rates among all countries in the region with respect to
production of basic grains, allocating 15.7 percent and 15.4 percent,
respectively, to this activity. Nicaragua is in a relatively low position in
this context (5.7 percent), and this will do little to promote the considerable
potential the country has to create high-production mechanised farmland in its
Pacific plains, with their fertile, volcanic soils. Nor will it help to develop
such production in the country's broad, intra-mountain valleys, where small
producers are feeling the impact of the lack of funding (as indeed are producers
from the other countries in the region, whose problems are very
similar).

Guatemala has the largest funded area, at around 708 200
hectares on average over the last six years (see also Annex 18). This makes
Guatemala the region's main producer. Honduras and Nicaragua have much smaller
funded areas, which are out of keeping with the capacities that exist the
countries of Central America as a whole, where the potential land is estimated
to be around 3.5 million hectares. This means that only 23 percent of that
potential is managed with credits, with the rest of the funding being allocated
to traditional export crops, such as coffee.

One significant aspect of this problem is the structure of the
relatively small amount of funding provided for basic grains. Maize accounts for
64 percent of that funding, while rice accounts for 22 percent, and beans (the
largest source of protein for poor population sectors), receive 14 percent, as
shown in Table 16.

Table 16. Structure of funding for production of basic
grains in countries affected by Hurricane Mitch*

* Average for last 6 years;

Country

Total %

Maize

Beans

Rice

Belize

100

0.0

0.0

100.0

Guatemala

100

81.8

7.2

11.0

El Salvador

100

60.8

2.9

36.3

Honduras

100

71.6

22.5

5.9

Nicaragua

100

9.1

2.5

88.4

Regional average

100

64.0

14.0

22.0

Source: Central Banks

The most significant factor is that a country such as
Nicaragua, whose people derive 66 percent of their calorie intake from maize and
beans, should allocate just 11.6 percent to both grains, whereas rice receives
88.4 percent of all possible funding. In the remaining countries, people's diets
are based on a high degree of maize consumption, in the form of tortillas, thus
maintaining a direct relationship with the funding accorded to that crop. Belize
allocates all funding to rice-production areas, with all the other grains being
seen as subsistence crops.

The distinctive feature of basic-grains production is that it
is the productive mainstay and the source of income for one-third of the
region's population, which is comprised of small farmers and indigenous owners
of less than 3 hectares for their annual crops. These people have no way of
purchasing the technological equipment, the more resilient and higher-yielding
genetic materials, the technical assistance, or the marketing, etc, that might
enable them to improve their profits and thus participate in the globalization
process.

In addition to the above, the tendency in all the affected
countries is to pour financial resources into external markets, leading to a
notably drastic reduction, within all the affected countries, in
technical-assistance programmes, which are designed to assist with certain
technology-transfer operations that might facilitate other technological methods
for improving both production and the living standards of the farming community
and of the rural sector in general.

A major example of an alternative technological measure is
presently being implemented in Honduras, in the form of FAO's Southern Lempira
project. This project involves specific actions designed to introduce new crops,
preserve soils and introduce organic fertilisation methods. This project
deserves serious consideration as a potential model - which might be replicated
elsewhere in the region - of how joint effort (without the influence of
traditional food aid operations and, above all, without taking on debt) can
achieve profitable harvests, which can improve the standard of living of
growers, in harmony with their environment.

It is important to note that most of the funding referred to
in the aforementioned indicators is that which has been provided by the
traditional funding sector. It does not include unconventional rural funding or
funding provided by non-governmental organizations in the form of technical
assistance, input-supply and training. The total amounts allocated to those
activities might well exceed the figures for the formal banking system. It was
not possible, however, to obtain a global figure to confirm this, as a great
deal of energy and institutional skill apparently goes into hiding the
significant expenditure on the bureaucracy of such institutions.

After Mitch, formal funding sources for the production of
basic grains declined. It is notable in all countries that funding sources for
these crops are very limited and scarce. The little funding that is made
available comes from cooperative sources and non-governmental organizations, as
described below. This means that the hurricane accentuated the crisis in this
productive sector, especially among cereals, which naturally produces a
deterioration in living standards within rural households. This does not mean,
however, that there were no resources and funding sources with which to restore
productive sectors. Other agricultural sectors, such as sugarcane, bananas,
coffee and traditional export crops, grown by big producers, absorbed nearly all
the available credit. The reason for this bias was the availability of bank
guarantees. Small producers cannot compete in this sort of situation.

Indeed, this was the common denominator in all countries, and
some of these small producers, who did not have the opportunity to access
funding sources, sold their labour in these agricultural sectors in order to
survive. If they were fortunate, they received food aid from the humanitarian
organizations. Many of them, however, were not lucky enough to find a temporary
job.

4. Trends in prices of basic
grains

In general, in all countries of the region, including those
least affected, suffered temporary rises in the prices of basic grains, and in
most towns in rural areas, prices had not been tracked before the disaster
struck. In fact, in countries such as Honduras and Nicaragua, upward price
movements were observed during the first 10 days after Hurricane Mitch, but
prices began returning to normal levels thereafter, once communications channels
had been reopened.

Table 17 shows price trends over the last six years,
demonstrating that in the post-Mitch period, increases have been recorded
especially in beans and rice. This was because dry beans and rice harvests
happened to be still in the field at the time of the hurricane. This was not the
case with maize, which demonstrates a declining trend in average prices paid per
46-quintal kilo. The country that pays the highest prices at the different
stages of the Producer ® Wholesaler ® Consumer chain is Guatemala, where prices have tended
to move in a cyclical fashion, but at a much higher level than in the rest of
the region. The margins between these economic actors in the case of maize
translate into a relative value of 20 percent for the consumer, while in beans,
that percentage is 30 percent higher, and in rice, the cost of intermediation
accounts for 54 percent.

In the case of El Salvador, the margins between the price paid
to the grower and the price paid by the consumer are 46 percent for maize; 39
percent for beans and 3.5 times for rice. For Honduras the same margins are: for
maize, 24 percent; for beans, 40 percent; and for rice, 3.2 times the average
price paid to the grower. Nicaragua has the biggest margins between prices for
all grains, at 61 percent in the case of maize, 43 percent for beans and 62
percent for rice. It should be noted, however, that compared with the other
countries in the region, these prices are the lowest.

Compared with the international prices governed by the Gulf of
Mexico, prices in Central America, which refer to the price paid to the
producer, set the value of maize at US$190/tonne, beans, at US$635/tonne; and
rice, at US$196/tonne. The values at the Gulf price are US$95/tonne, US$
490/tonne and US$187/tonne, respectively, for the same products.

In conclusion, domestic prices in each country have followed
the dictates of supply and demand, and it would seem that Hurricane Mitch did
not influence their behaviour to a decisive degree. The various factors
mentioned above have had a major impact, however. Imports have played a
fundamental role which, even if it has not harmed consumers directly, certainly
has had the effect of reducing the incomes of farm workers.

15 The FAO course, which focused on how
to update the methodology used to calculate food balances, was conducted
in Brazil, in March 2000. The USDA course included training in a mathematical
model for the analysis of the macroeconomic indicators influencing the availability
of foods, with the emphasis on basic grains.